Many pediatricians are beginning to sign capitated contracts that require them to provide services to children on an annual basis for a predetermined price. However, not all children have the same expected cost. Children with chronic illnesses, for example, are much more likely to incur higher costs than their healthy peers. This article summarizes the recent literature on payment systems that have been developed to establish capitated rates. It also summarizes other methods for reducing the risk that pediatricians face when they accept capitated payments. Finally, it discusses physicians' perceptions of how capitation affects their practice.